|Deteriorating performance on Alt-A loans is expected to push losses on the least seasoned residential mortgage-backed securities to nearly one-quarter, according to a new ratings agency report.
Last year, serious delinquency on Alt-A loans backing securitizations from 2006 and 2007 deteriorated substantially, Moody's Investors Service said in an announcement yesterday. Prepayment rates, meanwhile, declined to unprecedented levels.
Cumulative losses -- which had typically been below 1 percent on earlier Alt-A transactions -- were many times higher last year.
The poor performance reflected a deterioration in the underwriting requirements for the most recent Alt-A originations. Moody's noted that many loans were labeled Alt-A even though they were subprime. In addition, an increasing share of Alt-A loans included weaker documentation, non-owner occupied properties and two- to four-unit properties.
Moody's projects that cumulative losses will reach around 20 percent on 2006 vintage Alt-A RMBS and 24 percent on 2007 issuances.
"Average losses will generally be lower for loan securitizations made early in 2006 and become progressively higher moving through the two-year period," Moody's said. "The best-performing pools from 2006 have average projected losses of around 7.5 percent, while the worst performers from 2007 average around 29 percent projected losses."
Moody's speculated that subordinate securities are likely to be completely written off and said it expects to downgrade them to Ca or C -- a level where recoveries are expected to range between less than 25 percent to 75 percent.
But government housing-market stabilization initiatives could impact actual losses.
While around 90 percent of Alt-A RMBS rated by Moody's were downgraded last year, the New York-based ratings agency said it will again review its ratings on 2006 and 2007 vintages in light of its updated outlook. Transactions from 2005 will also be reviewed.